Chad Phipps & Karsten Bond, Financial Advisors

Student Loans Meet Retirement

The burden of student loans is typically associated with recent college graduates or young professionals, but the number of consumers age 60 and older with student loan debt quadrupled from 2005 to 2015 (see chart). During this period, the average amount owed by those 60 and older rose from $12,100 to $23,500.1

Repaying college debt can make it more difficult to save for retirement. Student loan borrowers who are 50 to 59 have lower retirement account balances than those without such loans. In 2015, 29% of loans by borrowers age 50 to 64 were in default, compared with just 17% for those under 50. For borrowers who are 65 or older (many of whom may be retired and living on a fixed income), the default rate was even higher at 37%.2

If you have student loan debt or are considering a higher-education loan, here are some factors to keep in mind.

Federal Offsets

The federal government can withhold all or part of a tax refund and up to 15% of monthly Social Security benefits to pay back defaulted federal student loans.3 (These federal “offsets” do not apply to private student loans, but private debt collectors may threaten to take such action.) Unlike some forms of debt, student loans cannot be discharged through standard bankruptcy proceedings.

Payment Considerations

Federal student loans offer a variety of income-based repayment plans, but it's important to make sure you are enrolled in the appropriate plan if your income changes, such as when you shift into retirement. Borrowers of Parent PLUS loans, designed specifically for parents, are eligible for a limited income-based repayment plan, but the loan must be converted to a federal consolidation loan.

When making payments for a student who has multiple loans that have not been consolidated — for example, if you co-signed a loan for a student who has other loans under his or her name — make sure that your payments are being applied to the appropriate loan in order to preserve your own credit.

Think About Your Own Future

Although some older Americans still carry debt from their own education or a spouse's education, almost three out of four student loan borrowers age 60 and older carry loans for children or grandchildren.4 Many parents feel a deep sense of responsibility to help put their children through college. But it's also important to focus on your own financial future and maintain a consistent and realistic retirement strategy. You won't find any scholarships to help pay for retirement.

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